CCS Environmental Analysis, June and July 2021
On a monthly basis, Gassnova prepares an analysis of important CCS international market trends, and what drives innovation in our focus areas. Here is the analysis for June and July.
The EU’s “Fit for 55” – how the EU will reduce greenhouse gas emissions by 55% by 2030
In July, the Commission launched a package of proposals on how to achieve recently adopted ambitious climate targets. The package contains proposals for new and changed regulations in several areas which, according to the commission, will “transform the economy and society fundamentally”.
Some of what has been suggested:
• The quota system (ETS) is, among other things, proposed to be expanded and strengthened
• The Innovation Fund will receive more funding and expand the sectors it supports
• All new cars will be emission-free from 2035.
• Higher taxes on fossil energy used in aviation and shipping, and requirements for the use of synthetic fuels in these sectors will be gradually increased.
• The scheme covering national responsibility for policies aimed at emissions outside the quota system (ESR – “Effort Sharing Regulation”) is, as expected, to be retained and strengthened.
The ESR covers about 60% of total emissions in the EU – including sectors such as agriculture, transport and construction. Waste incineration is still retained outside the ETS. The Commission has also announced proposals for changes in the gas market, but these will not be published until the end of the year.
Dissatisfaction with the proposal for a “customs tariff mechanism”
Much attention has been paid to the proposal for a tariff mechanism (CBAM – Carbon Border Adjustment Mechanism), which will prevent the import of industrial goods produced in countries with weaker climate regulations (carbon leakage). The scheme will be introduced gradually from 2023 to 2035 and will replace the current practice that has free quotas. The Commission has proposed that the scheme initially covers these sectors: iron and steel, cement, aluminum, fertilizers and power. Several countries outside the EU have expressed strong dissatisfaction with the scheme, and it is expected that the scheme will be the subject of extensive discussions in international forums, including the WTO, before it finds its final form.
Concern for residents of countries with weaker economies
It is estimated that before it is adopted, negotiations with the relevant nation states and within the European Parliament on the proposed package may take two years or more. Some reactions have already come in. Most of the concern is related to how the changes will affect the residents of countries with weaker economies and the inability to change their consumption patterns. The Commission has therefore placed special emphasis on a “social climate fund” to meet such challenges. This includes a framework of €72 billion to be given to these countries from the EU’s own budget for the period 2025–32.
Climate concerns greatest in the northern and western parts of the EU
A recently published public survey by Eurobarometer shows that the Commission supports its priorities; for the first time, “climate change” is the single issue that the EU population ranks as humanity’s biggest challenge. Concerns about climate change are the greatest in the northern and western parts of the EU as well as in high-income groups. Concerns about the economy and access to water/food are the greatest in the southern and eastern parts of the EU.
DNV study on the prospects for a hydrogen economy: High expectations and significant barriers
In July, DNV published a study on the path to a global hydrogen economy. The study confirms significant expectations for a future hydrogen market.
Hydrogen will make up half of their economy by 2030
Among industry leaders and experts currently involved in the production and/or use of hydrogen, 26% believe that hydrogen will make up half of their economy in 2030 compared to 2% today. The study also shows that there is reasonable agreement in the expectations of producers and users of hydrogen, and that investments made today are reasonably balanced between production and consumption in order to provide security for both parties.
Lack of investment is one of the biggest barriers
The study points out that the biggest barriers are the lack of investment in infrastructure for hydrogen, the high cost levels for hydrogen and a too slow implementation of regulations and carbon prices that provide the necessary investment signals to industry leaders and experts.
The study is based on a survey of 1124 people across multiple countries, industries and professions, as well as seven in-depth interviews with industry leaders.
DNV’s analysis: 85% of hydrogen used in 2030 will be from natural gas with CCS
Although the necessity of both blue and green hydrogen seems to be accepted by the majority of those who participated in the survey, these expectations are highly subjective and depend on the geographical areas in which they operate. DNV’s own analysis suggests that 85% of hydrogen used in 2030 will be from natural gas with CCS. The results from the study indicate a far more balanced expectation of the use of blue vs green hydrogen – including among the companies involved in the development of blue hydrogen.
The first part of the Danish government’s CCS strategy is ready – government wants to store CO2 on the Danish continental shelf
In June, the government announced the first part of a new CCS strategy dealing with the transport and storage of CO2.
First part of CCS strategy: Transport and storage
The strategy facilitates both the export of Danish CO2 to other countries and the possibility of a business importing foreign CO2 to be stored on the Danish continental shelf. In June, the Danish Energy Agency also announced a tendering competition for approximately DKK 200 million for the development and demonstration of technologies that would allow for CO2 storage in the North Sea.
Second part of CCS strategy: CO2 capture
The second part of the CCS strategy will deal with where the CO2 will be captured from and will be announced later this year.
The US is trying to balance climate and economic considerations – CCS is getting more attention
Following the United States’ re-entry into the Paris Agreement and new, ambitious targets for net-zero by 2050, much has happened in the areas of energy and climate policy that may have an impact on the development of CCS in the United States.
Scheme for financing industrial CCS projects
These events have affected the scheme for financing industrial CCS projects – known as 45Q – which has now been proposed to be revised to provide increased flexibility, broader scope, a longer timeframe and – last but not least – more money. The new proposal involves payment of up to $85 per ton for CO2 captured and stored from sources such as steel and cement and $120 for Direct Air Carbon Capture and Storage (DACCS) projects. In addition, Biden’s comprehensive infrastructure plan went a step further in July. This step provides space to support new CCS infrastructure. In July, there was also a positive development in political negotiations on the draft law (SCALE act) to legitimize support for the development of infrastructure projects for CCS. This is intended for projects that fall outside the 45Q scheme.
Development in CCS-related projects among industry players
Recently, there has also been notable development of CCS-related projects among industry players. In April, for example, ExxonMobil announced plans for a giga CCS project with a hub in Houston, Texas, with the ambition of upscaling to 100 Mt CO2 stored per year by 2040. The concept will depend on public incentives, money and goodwill. More specific projects have also been announced, including projects related to LNG production and hydrogen in other industries.
Political roadmap for establishing CCS infrastructure in the United States
In July, another initiative was announced by the think tank Energy Futures Initiative (led by former Energy Minister Ernest Moniz), together with an association of trade unions, on a political roadmap for establishing CCS infrastructure in the US on a gigaton scale. In addition to the effect these measures will have on the climate the road map places great emphasis on the fact that these measures will also contribute to the preservation of jobs in industries that it is challenging to decarbonize. The media reports that the roadmap has been well received in and is being discussed in congress. Nevertheless, there are still political debates related to continued investment in fossil fuels that are taking place within the US government. Recently the US Special Envoy for Climate Change, John Kerry, reiterated the IEA’s message that we should not invest more in fossil fuel at the same time as the government approved such new projects.
UK: Britons mostly positive about CCUS, but under certain conditions
The British Ministry of Industry (BEIS) published a study in July in which the public’s attitudes and views on CCUS were analyzed.
The organization of study
The study was carried out by an independent consulting company and was based on conversations with around 100 people who live close to industrial areas in the UK where such projects are being planned. The interviewees were led through four workshops over several weeks, where various aspects of CCUS were presented by selected experts and discussed in working sessions. The company drew their conclusions of the study after both quantitative and qualitative analysis of the conducted dialogue was carried out.
Result: Interviewees support the use of CCUS under some conditions
The findings from the study were that most of the interviewees supported the use of CCUS provided that the costs could be kept under control, that the benefits were in proportion to the costs and that the solutions could be considered safe for the environment. The interviewees also emphasized the possibilities that CCUS projects led to new jobs.
CCUS – difficult to understand
In general, many participants expressed that CCUS was complex and difficult to understand. This applied to an even greater extent to CCS together with bio-energy (BECCS), while Direct Air Carbon Capture and Storage (DACCS) as a concept was perceived as more understandable even though the technology was less well tested. Regarding hydrogen, the participants expressed greater concern about the use of hydrogen, rather than the way hydrogen was produced. A small proportion of the interviewees had objections to CCUS, and their attitudes did not change after being given more information. This was mainly not about CCUS per se, but rather because CCUS contributes to prolonged dependence on fossil energy.
The Environmental Analysis is prepared by Gassnova's analysis team.